In the modern economy, monetary disbursements are often accomplished by the payer issuing a negotiable instrument, or check, to the payee. The advantages check disbursement systems are well-known. However, checks are subject to fraud, and check fraud is becoming more wide spread as access to more advanced graphic color printing, equipment, image scanning equipment and/or photocopying equipment becomes more wide spread. Such equipment can easily duplicate or counterfeit many known negotiable instrument anti-fraud systems that are based either printing the negotiable instrument on secure stock with a “printed watermark” or printing the negotiable instrument with a secure font that may include unusual character shapes, sizes, and or colorings that are not typically available to other than the payer.
Using such equipment, it is common for a dishonest payee to use such equipment to increase the amount of a check and/or to duplicate a check several times to fraudulently obtain money. It is also common for a third party to obtain a check and alter the name of the payee (and possibly increase the amount and/or duplicate a check) to fraudulently obtain money.
Without the use of positive payment systems, such fraud may not be discovered until the payer receives its account statement (or a notice that the account is overdrawn) and discovers payment on checks that were not actually issued. With the use of positive payment systems, the fraud can be detected when the bank holding the payer's checking account begins receiving checks that to not match the list of checks issued by the payer (e.g. the positive payment file delivered to the bank by the payer that lists at the amount, and check number of each check issued by the payee). At least two problems with use of positive pay systems are: 1) the positive pay file can be used to verify the amount of a check and prevent payment of duplicated checks with the same check number, but does not provide any verification that the name of the payee has not been altered; and 2) by the time the bank compares the check to the positive payment file and detects the fraud, it is likely that the person who created the fraudulent check has already received at least a portion of the payment amount in cash and can no longer be located for recourse.
A known attempt to reduce fraud involves computing a check digit based on check information and printing the check digit on the check or delivering the check digit to the bank holding the account on which the check is drawn as part of the positive payment file. When the check is presented, the bank could recomputed the check digit (using the same check digit computation function) with the information on the face of the check and compare the computed check digit with that printed on the face of the check. If there is a discrepancy between the computed check digit and the check digit printed on the face of the check, the bank would be alerted to the forgery and not accept the check. The problem with such system, similar to that of the positive pay file system, is that by the time the fraud is detected and the check dishonored, it is likely that the person who created the fraudulent check has already received at least a portion of the payment amount in cash and can no longer be located for recourse.
Similar systems have been proposed wherein a facility first accepting the check upon presentation could recompute the check digit (or other encrypted control code) using the information on the face of the check. Again, if the computed check digit or control code does not match that printed on the face of the check, the facility would be alerted to the potential fraud and not accept the check. The problem with such a system is that each facility to which the check could first be presented would need to have access to the algorithm for calculating the check digit or control code. Such wide spread dissemination of the algorithm would for compromise its security and a sophisticated forger could simply use the algorithm to reproduce check digit or code on the face of the forged check that matches the forged check information thereby defeating both systems.
Yet another enhancement to such a system would involve encoding the check information into a machine readable code on the face of the check for reading and decoding by the facility. However, again, the wide spread dissemination of the equipment and algorithm for decoding the check would for compromise its security and a sophisticated forger could simply use the algorithm to reproduce a machine readable code on the face of the forged check that matches the forged check information thereby defeating the system.
Thus, there continues to exist a need to improve negotiable instrument security that does not suffer the disadvantages of known systems.